Is VIX Being Tricky or Is Worst Over for Stocks?

The more than 15 percent decline in the VIX (CBOE Volatility Index) is signaling there is less fear about Japan's nuclear crisis, as traders still watch the Middle East.

The VIX, considered a measure of market fear, rose last week as news about radiation leaks from Japan's damaged nuclear reactors looked increasingly dire. But the stock market has now assumed the worst case will be averted and stocks vaulted higher, sinking the VIX. The VIX was at 20.56 in mid afternoon.

"We got a mild test of 1250 (on the S&P 500). I'm not 100 percent convinced we can't go back down there and have a stronger test if things continue to be elevated in the Middle East, and anything else," said Dan Deming, who trades the VIX for Stutland Equities.

"But I do think if we can get back above 1300, you could say that was a good test."

Deming said AT&T's proposed $39 billion acquisition of T-Mobile USA was a catalyst for stocks, as well as the expectation that Japan's nuclear crisis can be contained.

"I'm convinced as long as the stimulus and liquidity is in place, there are buyers out there," said Deming.

Cardinal Capital's Patrick Kernan said traders are still watching Libya, but so far the market is not too stressed about it, despite the move higher in oil.

"I think really what we're seeing is people were so nervous about carrying anything over the weekend that people were just buying options to cover themselves against any catastrophic move," said Kernan. "I think people feel better about the situation in Japan being under control."